November 28, 2012 / 11:06 PM / 7 years ago

UPDATE 2-Moody's cuts Detroit debt ratings deeper into junk

* Moody’s assigned a negative outlook to new ratings

* Weaker oversight by Michigan after elections

Nov 28 (Reuters) - Moody’s Investors Service lowered Detroit’s debt ratings deeper into junk territory on Wednesday and warned there was a higher risk the cash-strapped city could default on bonds or file for bankruptcy.

The credit rating agency, which placed Detroit on review for possible downgrades in June, assigned a negative outlook to the lowered ratings, citing “the rising possibility that the city could file for bankruptcy or default on an obligation over the next 12 to 24 months.”

Moody’s also pointed out that oversight of the city’s finances by the state of Michigan was weakened when voters earlier this month repealed a 2011 law that beefed up the state’s power to aid financially struggling local governments.

Another factor playing into Detroit’s rating woes is its “ongoing inability to implement reforms necessary to regain financial stability,” Moody’s said.

Detroit’s city council has resisted certain reform measures supported by Mayor Dave Bing, state officials and an oversight board. Last week, the nine-member council rejected a contract with law firm Miller Canfield to work on the city’s financial stability deal with the state, which had set the contract as one of the goals Detroit must meet to obtain a $10 million cash infusion this month.

Bing subsequently said the city, which was on track to run out of money by the end of December, would turn to unpaid temporary leaves for workers and other cuts to stop that from happening.

A spokesman for Bing declined to comment on the Moody’s downgrades. Spokespersons for City Council President Charles Pugh and for Michigan’s governor and treasurer did not immediately respond to a request for comment.

Moody’s cut Detroit’s unlimited tax general obligation rating to Caa1 from B3, its limited tax GO rating to Caa2 from Caa1 and also downgraded ratings on the city’s water and sewerage revenue bonds. The downgrades affect $8.2 billion of outstanding debt, according to a Moody’s spokesman.

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